Carnage at crypto markets — weekly review
It would be useful to divide the period since the last publication into two phases: June 6–13 and June 13–16. At the start of the first period, the total crypto market capitalisation index was at $1.274 trillion. The index then declined steadily, reaching $1.061 trillion by the end of the first period. Then, during the second period, due to a sharp shift in market expectations, the index collapsed further to $843.7bn. After recovering to $951bn, the index fell back below $900bn by the end of the period. The index fell by more than 30% over the week.
Bitcoin had a similar trajectory within the two periods mentioned above. Having started the first period at 31 700, it had fallen to 26 770 by the end of the period. Then, influenced by all the same factors, the price of digital gold collapsed to 20 177. After a small “bounce” from the fundamental support level of 20 000, bitcoin is trading around the 21 000 level.
Ethereum’s price movement began at 1900 in the first period, before falling to 1450 in the end. In the second period, the price of the asset collapsed to 1029. At the end of the second period, Ethereum has been trading around the 1100 level.
The US Federal Reserve raised its rate to 1.5%-1.75%, representing an increase of 75 basis points. The Fed said it also intends to continue cutting its balance sheet. According to Goldman Sachs, traders forecast a range of 3.25%-3.5% by the end of the year, implying an unusually fast and tough pace of monetary policy tightening. Such a move is aimed at combating decades of high inflation. The Fed’s move represents the highest interest rate since the early 1990s. An hour after the meeting, bitcoin (BTC) was trading around $21 444, up from $21 076 when the decision was announced.
Crypto-lending company Celsius stated that it is suspending withdrawals from its platform, citing extreme market conditions. The Alex Maszynski-led company had about $12 billion in assets with 1.7 million users as of May. In a note to customers, Celsius added: “Due to extreme market conditions, we are announcing today that Celsius is suspending all withdrawals… We are taking this action today to put Celsius in the least vulnerable position to meet its withdrawal obligations over time.” The price of Celsius’ native token, the Celsius token, fell sharply on this news, dropping 45% to $0.21 per unit.
Coinbase will reduce its workforce by around 18% (or more than 1000 people) to survive the downturn in the cryptocurrency market. CEO Brian Armstrong said it was necessary to “ensure our health during the economic downturn”. He also said Coinbase had grown too fast and “over-hired”. The company has about 5000 employees and about 1100 of those will be laid off. Downsized employees will receive a minimum of 14 weeks’ severance pay plus an extra two weeks for every year of employment beyond one year, four months of health insurance if they reside in the US, four months of mental health support and access to Coinbase’s Talent Centre. Coinbase estimates the total restructuring costs associated with employee severance and other termination payments to be between $40 million and $45 million.
USD Coin (USDC) issuer, Circle Internet Financial, is expanding with the release of a new Euro-pegged stablecoin. Euro Coin (EUROC) will become available from June 30. The new stablecoin will be a “regulated, euro-backed stablecoin issued under the same full reserve model and built on the same pillars of trust, transparency and security that have made USDC one of the world’s most trusted digital currencies”. In the beginning, EUROC will be issued as an ERC-20 token on the Ethereum blockchain, then support for other blockchains will be added.
Options market conditions
After last Friday’s inflation data release, the Federal Reserve came under additional pressure from the statistics and was forced to publicly acknowledge its erroneous expectations of short-term high inflation and raise the rate by 0.75% point. In the run-up to the rate decision release, the expected volatility on near-center strike rates on air was over 300% providing a huge opportunity for options sellers — the amount of premiums exceeded 4% for a two-day duration.
An example of a trade blotter on one of the exchanges.
Against this background, trading volumes in bitcoin and ether derivatives increased significantly and reached new yearly highs.
According to laevitas analytical service, the daily Bitcoin options trading volume was more than $1.1 billion with put options predominating. While Ethereum’s trading volume exceeded $600 million and the proportion was in favour of call options. Demand for call options is supported by this year’s expected change in blockchain consensus and the move to a less energy-intensive proof-of-stake algorithm.
August options, with a value of 140 million (+40% during the day), were the most heavily traded after the meeting. Weekly options with an execution date of July 1 were also actively traded — the total interest in Bitcoin and Ether exceeded 250 million, having increased by 24% during the day.
The Fed meeting and the change in the regulator’s stance has had a significant impact on markets — both traditional and cryptocurrency. The rate hike cycle is currently undefined. Despite the verbal statements, the final decision is under pressure from emerging statistics and could be changed at the last moment. Turbulence in the markets is increasing and crypto assets are being held hostage to the macroeconomic agenda losing their autonomy and growth drivers. In the near term, we should expect a reassessment of risk levels and increased volatility, which could lead to sharp short-term price spikes.
Money markets — an extension for experienced crypto users
Our team has decided to add a new column to our weekly reports — “money cryptocurrency rates”. This information will allow us to compare earnings in stablecoins between different ways of getting “organic” returns — providing liquidity to decentralized exchanges, to decentralized deposits or through placing liquidity when selling options (weekly term, central strike, stablecoin via put options, ETH/BTC via call options).